Yahoo signs pact with Rogers Cable

BambiFrancisco

SAN FRANCISCO (CBS.MW) -- Last week, Yahoo's Terry Semel said that one of the online media's priorities in 2004 was to continue to create partnerships.

The online media giant has followed through.

Yahoo
YHOO
said Tuesday that it signed a multiyear pact to provide dual-branded, high-speed Internet access to customers of Rogers Cable.

This is Yahoo's first cable partnership; it already has similar partnerships with telephone companies SBC Communications and British Telecom.

Cobranded, Internet access partnerships are key to Yahoo's diversification. At the end of 2003, Yahoo derived 18 percent of its total revenue from its fee-based business, led by sales of Internet access.

The number of paying relationships stood at 4.9 million at the end of last year, and revenue stood at $298 million, up 43 percent from 2002. While Yahoo's personal or dating service and its e-mail storage are part of the fee-based business, the bulk of subscribers pay for Internet access.

Last week, Yahoo CFO Sue Decker said that Yahoo's goal was to reach 7 million to 7.5 million paying subscribers by the end of this year.

Rogers Cable has 800,000 broadband subscribers.

The companies did not disclose a release date for the cobranded product launch or when Rogers' existing 800,000 subscribers will migrate over to the joint access service. The deal could add between $29 million and $55 million in annual sales, calculates Anthony Noto, an analyst at Goldman Sachs. Rollout is likely to occur between the summer and early third quarter. Yahoo could generate on average between $2 and $3 per month from all new and existing subs transitioning to the co-branded service, wrote Noto, in a note to clients.

Yahoo shares fell half a percent in Tuesday trading.

Separately, Yahoo announced the formation of Yahoo Research Lab. The group, which will be led by Gary Flake, Yahoo's principal scientist and former chief science officer at Overture, began as Overture Labs back in 2002. Among the projects the group focused on were providing searches on a local level and contextual advertising.

Elsewhere in trading, shares of eBay
EBAY
fell 1 percent to $66, ahead of the company's quarterly results to be released Wednesday. InterActiveCorp
IACI
gave up about 1 percent. Amazon.com
AMZN
was the only stock among the big four Net names that traded higher. CNet
CNET
fell 2 percent to $9.13. RealNetworks
RNWK
gave up 4 percent to $6.78.

On the upside were shares of tinier Net names.

Red Envelope
REDE
an upscale retailer, saw shares jump 9 percent to $11. The stock is still well below the $16.98 level it struck back in early December. Recall, on Jan. 9 Red Envelope warned that it wouldn't meet its fourth-quarter goals. See full story.

Salon Media Group
SALN
rose another 27 percent to 19 cents. Last week, Rolling Stone magazine's founder and editor Jann Wenner agreed to invest $200,000 while John Warnock, co-chairman of Adobe Systems and already a financial supporter of Salon, agreed to invest an additional $600,000.

EDiets' strategy could pay off

Shares eDiets
EDET
hit a fresh 52-week high as shares climbed above $8 in the early going Tuesday. EDiets, which turned cash-flow positive during the latter half of last year, plans to turn on its marketing efforts this year to grow its subscription base. As of the third quarter last year, eDiets, which provides diet programs online, had 210,000 subscribers that stay on for five months on average and pay $5 per week. The first quarter of this year is considered its strong period as many people focus on slimming down.

EDiets a tiny Web site operator of subscription diet programs, plans to raise its advertising budget this year, which is already about two-thirds of the revenue it brings in.

By doing so, the company hopes to build up its subscriber base, and forgo profits if need be. It's quite a departure from the bootstrap, cutting-costs, focus-on-profit mentality of the last two years.

"Our goal is to aggressively grow subscribers," said Robert Hamilton, eDiets' CFO. In 2004, "profitability is uncertain."

Nonetheless, eDiets has turned the corner on cash flow. It turned cash flow positive during the second half of last year, and despite its aggressive marketing/advertising plans, it has a goal of recording full year of positive cash flow this year.

EDiets has a market cap of about $150 million today; the company is expected to lose 14 cents a share on annual sales of $38 million in 2003. Its marketing push this year should lift sales 36 percent to above $51.8 million, according to Merriman Curhan Ford & Co.

Last year, eDiets spent $23 million, or about two-thirds of its annual expected revenue of $38 million, on advertising.

Membership jumped last summer after eDiets began offering branded diets and changed its subscription model. EDiets doubled its weekly subscription price to $5 per week. But because it offered the option to cancel at any time after one week, people were willing to pay more.

Hamilton says the company's business model of adding one new branded diet program each quarter, and goals to sign new distribution deals, should keep eDiets' business momentum strong.

Ediets has a couple of trends in its favor, like the increasing popularity of low-carb diets and the Web as the medium to consume information, news and products like digital music.

EDiets.com is a repository of diet programs on the Web, and has had particular success with the Atkins Nutritional Approach, known for low-carb programs. Low-carb diets are getting more traction as fast-food chains jump aboard, and earlier this week Unilever launched a low-carb food line. Americans spend about $2 billion annually on diet programs, according to various estimates.

The majority of eDiets' sales are made through subscriptions, with the average of customers showing women who are 37 years old, 5 feet 4 inches and 185 pounds, looking to lose weight. As of August of last year, women reached parity within the online population, according to Pew Internet & American Life Project.

Additionally, eDiets has a subscription service that females are willing to sign up for.

And, consumers are increasingly willing to pay for content unlike the early commercial days of the Internet.

EDiets is expected to grow fourth-quarter sales 44 percent to $10.5 million. By comparison, Yahoo, which just reported earnings on Wednesday, said that fourth-quarter fees, which include Internet access fees and online dating subscriptions, rose 37 percent to $85 million in that period.

InterActiveCorp's personal division, which includes Match.com, uDate, Soulmates and Kiss, saw third-quarter sales hit $48.3 million, up 44 percent. According to the Online Publishers Association, consumers spent $748 million in content in the first half of 2003, up 23 percent, with online dating, business investment and lifestyles accounting for two-thirds of what people pay for on the Net.

Online ad expectations

Online advertising overall is expected to grow 20 percent to $8.3 billion this year vs. a previous investment outlook of 15 percent, according to JP Morgan. The investment bank also pegs paid search to rise 30 percent to $2.8 billion, up from $2.1 billion in 2003. Rich media is expected to grow 44 percent to $600 million in 2004 while online classifieds are expected to grow 27 percent to $1.6 billion. E-mail and pop-up advertisements are estimated to grow by 20 percent.

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